Global money managers are still seeing increases in profit margins but are experiencing greater pressure on fees, said a survey from Casey, Quirk & Associates in partnership with compensation consultant McLagan.
As of Dec. 31, global assets under management totaled an estimated $67 trillion, up 10.5% from the year before, due primarily to strong investment returns overall. However, industry revenue only rose an estimated 6.3% to $319 billion during 2014. The year before, global AUM rose 11% compared to a global revenue increase of 6%.
Jeffrey Levi, partner at Casey, Quirk & Associates, said in a telephone interview that while the industry is healthy, managers are feeling the effects of the global trend among institutional investors to keep fees down.
Among the causes of this pressure, he said, are more emphasis on lower-fee-generating passive strategies, as well as the very low-interest-rate environment in which returns must justify the fees, and pressure on public pension funds to keep fees low.
Additionally, “in the DC world, investment consultants are playing a much bigger role and creating more transparency and greater consistency, which is causing fees to fall,” he said.
“There is more focus on negotiating fees down especially in the institutional world,” he said, as well as consolidating to fewer managers to reduce overall fees.
The expense ratio, for example, of U.S. registered traditional equity funds has gone down to 89 basis points in 2014 from 96 basis points in 2012, and for traditional fixed income has gone down to 70 basis points in 2014 from 73 basis points in 2012.
The survey queried 110 money management executives in North America, Europe and Asia-Pacific, representing $28.2 trillion in assets under management, from March through June.